FOREX WAVE THEORY This page intentionally left blank FOREX WAVE THEORY A Technical Analysis for Spot and Futures Currency Traders JAMES L. BICKFORD McGraw-Hill New York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore Sydney Toronto Copyright © 2007 by The McGraw-Hill Companies. All rights reserved. Manufactured in the United States of America.
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Your right to use the work may be terminated if you fail to comply with these terms. THE WORK IS PROVIDED “AS IS.” McGRAW-HILL AND ITS LICENSORS MAKE NO GUARANTEES OR WARRANTIES AS TO THE ACCURACY, ADEQUACY OR COMPLETE- NESS OF OR RESULTS TO BE OBTAINED FROM USING THE WORK, INCLUDING ANY INFORMATION THAT CAN BE ACCESSED THROUGH THE WORK VIA HYPERLINK OR OTHERWISE, AND EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. McGraw-Hill and its licensors do not warrant or guarantee that the functions contained in the work will meet your requirements or that its oper- ation will be uninterrupted or error free. Neither McGraw-Hill nor its licensors shall be liable to you or anyone else for any inaccuracy, error or omission, regardless of cause, in the work or for any damages resulting therefrom.
McGraw-Hill has no responsibility for the content of any infor- mation accessed through the work. Under no circumstances shall McGraw-Hill and/or its licen- sors be liable for any indirect, incidental, special, punitive, consequential or similar damages that result from the use of or inability to use the work, even if any of them has been advised of the pos- sibility of such damages. This limitation of liability shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tort or otherwise.1036/0071493026 Professional Want to learn more? We hope you enjoy this McGraw-Hill eBook! If you’d like more information about this book, its author, or related books and websites, please click here. For more information about this title, click here Contents List of Figures and Tables ix Acknowledgment xv Introduction xvii Part 1.
Currency Futures 9 Part 2. Crossover Trading Systems 27 6. Wave Theory 37 Part 3. Point and Figure Charts 41 8.
Swing Charts 49 v vi Contents Part 4. Brief History of Wave Theory 59 10. Origins of Wave Theory 61 11. Elliott Wave Theory 79 14.
Goodman Swing Count System 95 Part 5. Two-Wave Cycles 103 16. Properties of Two-Wave Cycles 105 17. Enhancing the Forecast 109 Part 6.
Three-Wave Cycles 113 18. Basic Types of Three-Wave Cycles 115 19. Forecasting the Third Wave 123 Part 7. Four-Wave Cycles 127 20.
Names of Multiwave Cycles 129 21. Properties of Four-Wave Cycles 133 Part 8. Five-Wave Cycles 137 22. Properties of Five-Wave Cycles 139 23.
Forecasting the Fifth Wave 143 Contents vii Part 9. Six-Wave Cycles 149 24. Properties of Six-Wave Cycles 151 25. Forecasting the Sixth Wave 153 26.
Double-Wave Forecasting 159 Part 10. Practical Studies 181 Appendices 189 A. ISO Currencies Pairs 191 B. Global Banking Hours 201 D.
Basic Three-Wave Cycles 203 E. Resources 205 Index 213 This page intentionally left blank List of Figures and Tables Part 1. Currency Markets Chapter 1 Spot Currencies Figure 1-1 Pips versus Ticks Relationship Figure 1-2 Calculating Transaction Costs Chapter 2 Currency Futures Table 2-1 Currency Contract Specifications Table 2-2 Futures Volume and Open Interest Table 2-3 US Dollar Index Weights Part 2. Technical Analysis Chapter 3 Pattern Recognition Figure 3-1 Double Top Figure 3-2 Double Bottom Figure 3-3 Head and Shoulders Top Figure 3-4 Head and Shoulders Bottom Figure 3-5 Flag or Pennant Figure 3-6 Symmetrical Triangle Figure 3-7 Ascending Triangle Figure 3-8 Descending Triangle Figure 3-9 Rectangle ix Copyright © 2007 by The McGraw-Hill Companies.
Click here for terms of use. x List of Figures and Tables Chapter 4 Econometric Models No Graphics Chapter 5 Crossover Trading Systems Figure 5-1 Daily Close with 5-Day Moving Average Figure 5-2 Residual Difference Figure 5-3 Relative-strength Index Figure 5-4 Stochastic Oscillators Figure 5-5 Bollinger Bands Chapter 6 Wave Theory Figure 6-1 Simple Wave Chart Part 3. Reversal Charts Chapter 7 Point and Figure Charts Figure 7-1 Point and Figure Chart Figure 7-2 Point and Figure Chart Anatomy Chapter 8 Renko Charts Figure 8-1 Renko Peak and Valley Chart Figure 8-2 OHLC with Three-Brick Renko Chart Chapter 9 Swing Charts Figure 9-1 Peaks and Valleys Figure 9-2 Three-box Reversal Figure 9-3 Six-box Reversal Figure 9-4 Nine-box Reversal Figure 9-5 Twelve-box Reversal Figure 9-6 Composite Swing Chart Table 9-1 Inverse Relationship Part 4. Brief History of Wave Theory Chapter 10 Origins of Wave Theory Table 10-1 First Dow Jones Industrial Average Table 10-2 Most Recent Dow Jones Industrial Average Chapter 11 Gann Angles Table 11-1 Significant Gann Angles Figure 11-1 S&P 500 with Gann Angles Figure 11-2 S&P 500 with Gann Grid List of Figures and Tables xi Chapter 12 Kondratiev Wave No graphics Chapter 13 Elliott Wave Theory Figure 13-1 Impulse Pattern Figure 13-2 Corrective Pattern Figure 13-3 Second-Wave Retracement Figure 13-4 Third-Wave Rally Figure 13-5 Third-Wave Shorts Stopped Out Figure 13-6 Third-Wave Accelerates Figure 13-7 Completed Impulse Cycle Figure 13-8 Waves within Waves Table 13-1 Cycle Names Chapter 14 Gartley Patterns Figure 14-1 Gartley Pattern Figure 14-2 Butterfly Pattern Figure 14-3 Bat Pattern Figure 14-4 Crab Pattern Chapter 15 Goodman Swing Count System Figure 15-1 Fifty Percent Retracement and Measured Move Figure 15-2 Congestion Phase Figure 15-3 Market Tug of War Figure 15-4 The Measured Move and Unwinding Figure 15-5 The Markets Are Recursive Part 5.
Two-Wave Cycles Chapter 16 Properties of Two-Wave Cycles Figure 16-1 Wave 1 > Wave 2 Figure 16-2 Wave 1 = Wave 2 Figure 16-3 Wave 1< Wave 2 Table 16-1 Two-Wave Relationship Frequencies Table 16-2 Autoregressive Partial Coefficients Chapter 17 Enhancing the Forecast Table 17-1 First-Tercile Regression Coefficients Table 17-2 Second-Tercile Regression Coefficients Table 17-3 Third-Tercile Regression Coefficients Figure 17-1 Third-Wave Forecast xii List of Figures and Tables Part 6. Three-Wave Cycles Chapter 18 Basic Types of Three-Wave Cycles Figure 18-1 Impulse Cycle Figure 18-2 Rectangle Figure 18-3 Contracting Descending Triangle Figure 18-4 Contracting Ascending Triangle Figure 18-5 Contracting Symmetrical Triangle Figure 18-6 Expanding Ascending Triangle Figure 18-7 Expanding Descending Triangle Figure 18-8 Expanding Symmetrical Triangle Figure 18-9 Connector Table 18-1 Bear-Cycle Conversions Table 18-2 Three-Wave-Cycle Frequencies Chapter 19 Forecasting the Third Wave Figure 19-1 Two-wave Pattern (Wave 1 > Wave 2) Figure 19-2 Possible Third-Wave Continuations Table 19-1 Raw Percentages Table 19-2 Adjusted Percentages Part 7. Four-Wave Cycles Chapter 20 Names of Multiwave Cycles Figure 20-1 Basic Four-Wave Cycle Figure 20-2 Components of a Four-wave Cycle Figure 20-3 Six-Wave Cycle Table 20-1 Component Waves Figure 20-4 Four-Wave Bear Cycle Chapter 21 Properties of Four-Wave Cycles Table 21-1 Four-Wave Cycles Sorted By 25-Pip Reversal Table 21-2 Four-Wave Cycle Percentages Sorted by Cycle ID Figure 21-1 Three-Wave Bull Connector Cycle Figure 21-2 Possible Fourth-Wave Continuations Table 21-3 Connector Cycle Percentages Part 8. Five-Wave Cycles Chapter 22 Properties of Five-Wave Cycles Table 22-1 Secondary Cycle Types Table 22-2 Primary Cycle Types Table 22-3 Five-wave Cycles Sorted By 25-Pip Reversal Amount List of Figures and Tables xiii Chapter 23 Forecasting the Fifth Wave Table 23-1 Five-Wave Cycle Frequencies Sorted by Cycle ID Figure 23-1 Potential Five-Wave Elliott Impulse Cycle Figure 23-2 Head and Shoulders with Descending Neckline Figure 23-3 Extended Contracting Symmetrical Triangle Figure 23-4 Extended Expanding Symmetrical Triangle Part 9.
Six-Wave Cycles Chapter 24 Properties of Six-Wave Cycles Table 24-1 Six-Wave Cycles Sorted by 25-Pip Reversal Amount Chapter 25 Forecasting the Sixth Wave Table 25-1 Six-Wave Cycles Sorted By Cycle ID Figure 25-1 Extended Impulse Cycle Figure 25-2 Head and Shoulders Forecast Figure 25-3 Chimera Cycle Forecast Chapter 26 Double-Wave Forecasting Figure 26-1 Double-Wave Extrapolation Figure 26-2 Four-Wave “Ah” Cycle Table 26-1 Raw Frequencies for “Ah” Cycle Figure 26-3 Double-Wave Forecast for “Ah” Cycle Table 26-2 Double-Wave Forecast Percentages Part 10. Advanced Topics Chapter 27 Data Operations Table 27-1 EURUSD Streaming Tick Data Table 27-2 EURUSD 1-Minute Interval Data Figure 27-1 Order = O → H → L → C Figure 27-2 Order = O → L → H → C Figure 27-3 Order = O → H → L → C Figure 27-4 Order = O → L → H → C Figure 27-5 Open = Close Figure 27-6 Two Cases Figure 27-7 Order = O → ? → ? → C Chapter 28 Swing Operations Figure 28-1 Pivot Chart Table 28-1 Cycle Coordinate System xiv List of Figures and Tables Figure 28-2 Impulse Cycle with Coordinates Figure 28-3 Three-Wave Impulse Cycle with Channel Lines Figure 28-4 The Nine Basic Bull Cycles with Channel Lines Figure 28-5 Collapsing Bull Cycles Figure 28-6 Collapsing Modes Figure 28-7 Single Three-Wave Cycle Collapsing Figure 28-8 Continuous Multi-wave Cycle Collapsing Chapter 29 Practical Studies Figure 29-1 EURUSD 01/6/2006 5-Pip Reversal Amount Figure 29-2 EURUSD 01/6/2006 10-Pip Reversal Amount Figure 29-3 EURUSD 01/6/2006 15-Pip Reversal Amount Figure 29-4 EURUSD 01/6/2006 20-Pip Reversal Amount Figure 29-5 EURUSD 02/3/2006 5-Pip Reversal Amount Figure 29-6 EURUSD 02/3/2006 10-Pip Reversal Amount Figure 29-7 EURUSD 02/3/2006 15-Pip Reversal Amount Figure 29-8 EURUSD 02/3/2006 20-Pip Reversal Amount Figure 29-9 EURUSD 02/16/2006 5-Pip Reversal Amount Figure 29-10 EURUSD 03/16/2006 10-Pip Reversal Amount Figure 29-11 EURUSD 03/16/2006 15-Pip Reversal Amount Figure 29-12 EURUSD 03/16/2006 20-Pip Reversal Amount Table 29-1 Reversal Amounts versus Number of Swings Appendices Table A-1 World Currencies Table B-1 Exchange Rates Figure C-1 Global Banking Hours Figure D-1 Basic Three-Wave Cycles Acknowledgment I wish to thank Paul J. Szeligowski, friend and economic analyst, for his editorial assistance in the preparation of this book. His insightful rec- ommendations and novel ideas proved invaluable in researching the nature and occasionally cryptic relationships that arise when scrutinizing financial wave theories.
xv Copyright © 2007 by The McGraw-Hill Companies. Click here for terms of use. This page intentionally left blank Introduction Trading in the foreign exchange currency markets recently has exceeded $2 trillion a day, and this figure is expected to double within the next five years. The reason for this astonishing surge in trading popularity is quite simple: no commissions, low transaction costs, easy access to online currency markets, no middlemen, no fixed-lot order sizes, high liquidity, low margin with high leverage, and limited regulations.
These factors already have attracted the attention of both neophyte traders and veteran speculators in other financial markets.